Alcoa sells Chalco stake for US$2b

PUBLISHED : Thursday, 13 September, 2007, 12:00am
UPDATED : Thursday, 13 September, 2007, 12:00am

Alcoa, the largest foreign stakeholder in Aluminum Corp of China (Chalco), has cashed out of its six-year investment for about US$2 billion as it judges a rally in the shares fuelled by the commodities boom has peaked.

The United States-based company offloaded its entire stake of about 884.2 million H shares in the mainland's largest producer of aluminium, market sources said.

The sale brought Alcoa a gain of about US$1.8 billion. Alcoa, which acquired the stake in Chalco in its 2001 initial public offering, has seen the shares climb almost 15-fold during that time as mainland industrial expansion fuelled a bull run in metal prices.

The unfolding US credit crunch has cast doubts on whether commodities can continue their rally. Aluminium prices have dropped 13 per cent in the past two months.

'It's time for some strategic investors to cash out from large state-owned enterprises as they bought the shares at a relatively low price,' said one fund manager.

Alcoa hired Goldman Sachs to help sell the shares at a price range of HK$17.26 to HK$18.27 per share, according to a term sheet sent to institutional investors.

The shares were sold at HK$17.34, a discount of 15 per cent to the stock's close of HK$20.40 yesterday, Reuters reported.

'We were surprised by the cheap offering when we got the terms,' said one investor involved in the sale. 'It signalled the stock has peaked.'

Alcoa, the second-largest aluminium company in the world, held 22.42 per cent of outstanding H shares in Chalco as the largest single foreign investor. Franklin Resource Group follows with 17.8 per cent.

Shares of Chalco have surged 183.33 per cent since the beginning of the year, compared with the Hang Seng Index's 21.77 per cent gain.

Chalco's first-half profit dropped 5.15 per cent to 6.4 billion yuan.

The result still beat the median estimate of 5.6 billion yuan because of higher product prices and lower tax rates.

'Chalco could be under pressure as the stake sale will definitely hurt the relationship between the two firms,' the fund manager said.

In a bid to further increase its market share, Chalco has outlined an aggressive capital expenditure plan with 16.7 billion yuan in spending this year and 16 billion yuan next year.

Hot metal

The increase in Chalco's share price since the beginning of this year: 183%